Transcript A Political Economy Explanation for Changing Income Distributions

A Political Economy
Explanation for Changing
Income Distributions
Background
The “Good Old Days”
1947-1975
Background
–
The good old days, the 1940’s through the
mid-1970’s, really were good for most
Americans.**
Real Family Incomes
by quintile, adjusted for inflation, 1947-1973
•
First quintile
117% ↑
•
Second quintile
97.5% ↑
•
Third quintile
103.1% ↑
•
Fourth quintile
104.3% ↑
•
Fifth quintile
88.3% ↑
Real Family Incomes
•
•
•
In other words, virtually everybody’s real
income doubled.
And virtually everybody’s standard of living
rose accordingly.
This was a period of low real unemployment;
even in rural and urban slums, most people had
jobs.
Real Family Incomes
•
Minimum wage was really a wage that you
could live off of. It was also regularly adjusted
for inflation. This set a floor for all workers,
especially younger, or unskilled workers.
•
Unemployment benefits were good, so that
people could survive the relatively short periods
without a job.
Real Family Incomes
•
In the mid 1950’s, about a third of American
workers had unions, which drastically reduced
workplace deaths, disabilities, injuries and
illnesses.
•
Unions also fought for overtime pay, health
insurance coverage, and generous retirement
packages.
Real Family Incomes
•
Not everyone benefited equally well.
•
Women weren’t supposed to work, or if they
did, they were supposed to be secretaries.
•
And poverty was widespread among minorities
and the rural white.
Causes
The “Good Old Days”
1947-1975
Causes for
widespread prosperity
I.
Exceptional position of the US economy in the
world: no competitors for 20+ years.
II. Government spending on education,
infrastructure, health.
Causes for
widespread prosperity
A.
The US dominated the world’s economy,
because our competitors were destroyed
(Germany and Japan), or damaged by the WWII
(France, UK, Europe in general)
B.
US businesses had no problem exporting
whatever they wanted.
C. There were hardly any imports, except coffee.
Causes for
widespread prosperity
A. The United States government funded the GI
Bill, and spent massively on all levels of
education.
B. The US government spent a lot on health care,
especially starting in the 1960’s.
C. The US government spent a lot on physical
infrastructure, - Interstate highway system,
roads, electrical power grids.
D. The US government spent a lot on basic science.
Causes for
widespread prosperity
A. There was high voter turnout.
B. A large majority of people voted Democratic.
C. Most of these were what we would call liberal or
moderate Democrats today.
D. A third of American workers were in trade
unions, which were respected, popular and
strong.
E. This combination meant that even some
Republicans would today be called liberals.
Economic Changes
The “Bad Old Days”
1947-1975
Real Family Incomes
•
•
•
•
The richest quintile suffered from very high tax
rates.
The richest 1—10% had tax rates of 70% or
higher, and few loopholes.
Meanwhile their income only increased by 88%,
not doubling, during the 1940’s to the 1970’s.
They hardly had any bonuses.
Economic changes
The 1960’s & 1970’s were not good for
corporate America.
A. During this time, profit rates fell, for nearly all
industries.
B. In addition, there was a great deal of mistrust of
business & specific industries.
Falling Profits
Strong unions led to pay raises, and increases in
costs for health and safety related issues.
Relatively full employment meant that workers
could easily change jobs if a company didn’t
treat people well.
The environmental movement forced companies
to spend large sums of money to clean up
after themselves.
Falling Profits
On top of this, there were two oil price shocks, in
1974 and 1979.
In the first case, oil prices doubled.
Then five years later oil prices tripled.
These events triggered both inflation and
recessions.
Unpopularity of Business
In addition, there was a great deal of mistrust of
business & specific industries.
- People were angry with the profits companies
made during the Vietnam War.
- People were angry at the pollution companies
made.
- People were angry with the control companies
had over many aspects of our society.
Regaining Control
1970’s to the present
Changing America
For some people, the business of America is
business.
For others, what is good for General Motors is
good for America.
Techniques to Regain Control
1.
2.
3.
4.
5.
Rebuild the Republican Party
Change the Democratic Party
Take over the media
Change how politics are done
Change the culture
Rebirth of the
Republican Party
The Republican Party was reborn when it
discovered how to persuade fundamentalist
Christians to vote for it.
Previously these people had never voted, or voted
for (conservative) Democrats.
This process began in the mid 1970’s, and is
ongoing.
Rebirth of the
Republican Party
How?
Find those issues that really stir up religious
conservatives, persuade them that the
Republican Party supports those issues, and
persuade them that the Democratic Party is
opposed to them.
Not always that hard to do.
Rebirth of the
Republican Party
Result?
The Republican Party is a popular party.
The white South votes for the party of Abraham
Lincoln.
In parts of the country, poor and working class
people vote for very wealthy candidates.
Restructure the
Democratic Party
After Democrats start losing a lot of elections
from the mid-1970’s onwards, economic
conservatives in the Democratic party take
over the national leadership.
The Democratic National Leadership tells
democratic candidates that they are too liberal
and leftist to win elections.
Push the Democratic Party’s funds to
conservatives.
Restructure the
Democratic Party
Result?
Starting in the mid 1980’s, economic
conservatives won in Democratic primaries,
and then become the candidates (and
sometimes the winners) for elections.
At the national and state level, on economic
issues, Democrats are far more “businessfriendly” than any time since the 1920’s.
Change the Media
Far more conservative news:
- the creation of Fox News,
- put pressure on the other TV networks to
become more conservative
- turning AM and FM radio talk shows into
very conservative formats
- expand Christian radio, which has
conservative economic values
Change the Media
Results?
- all US news media is far more conservative
on economic issues than it has been in
decades
-example: How many news outlets have
talked about the tax cuts for the wealthiest in
Wisconsin as a cause of the budget crises?
Change the Media
Results?
- Example: How many Americans have become
persuaded that there is no global climate
change.
- Example: How many Americans have become
persuaded Social Security is bankrupt, and the
only way to save it is to invest the money in
the stock market
New Political Campaigns
- Development of negative campaign ads.
- Development of political campaigns by sound
bytes and TV advertisements.
- Political debates without real debates
- Lying or making up the facts has become very
common.
Political Results
1970’s to the present
Political Results
Election of Ronald Reagan, George Bush I,
then Bill Clinton and George Bush II.
Increasingly conservative Congress & Senate.
Far more millionaires & multimillionaires in
Senate & Congress.
Increasingly conservative judges.
Economic Results
1970’s to the present
Economic Results
1.
2.
3.
4.
5.
Fall in minimum wage
Assault on unions
Cut in social spending
Increased military spending/wars
Tax cuts for the rich and large
corporations
6. Bailouts for failing large corporations
Fall in Minimum Wages
Changes in the minimum wage are initiated by
the President, and voted on in the House of
Representatives and the Senate.
Conservative presidents and Congress didn’t
adjust the minimum wage to compensate for
inflation.
Who profits by this?
Fall in Minimum Wage
A small majority of people who earn minimum
wage are adults working full time, not
teenagers.
Many other wages are directly tied to minimum
wage, e.g. McDonald Assistant Managers &
Managers.
Fall in Minimum Wages
If minimum wage falls, the real wages of all
unskilled workers falls, sooner or later.
This will also drag down wages of semi-skilled
workers, sooner or later.
So the wages of gardeners and fast food workers
goes first.
Then all retail workers, then factory workers.
Fall in Minimum Wages
Results?
Wages of unskilled workers, part time workers,
young people drop.
So does the wages of the bottom quintile.
And now it is affecting other workers.
Assault on Unions
President Reagan was the first openly anti-union
President since the 1920s – helped destroy the
air-traffic controllers union in 1981.
Throughout the 1980’s the President despised
unions - sets the tone.
Assault on Unions
Full scale corporate attack on unions in the early
and mid 1980’s, with unions losing most of
the time.
UAW lost at Caterpillar, for example.
Assault on Unions
Laws were passed that made it much harder to
unionize unorganized workers.
Permanent replacements for strikers made it very
difficult for strikes to be won. The number of
strikes drops sharply.
Union organizing drives to bring unions to auto
workers in the South fails.
Assault on Unions
Real wages and benefits of union members fell.
Unions set a floor on local wages, so if union
wages fall, so will everyone else’s.
Assault on Unions
Result?
Membership in unions as a percentage of the
workforce drops dramatically.
Union members wages and benefits decline,
relative to everyone else, but also absolutely.
This hits the first 2 income quintiles sharply.
Cuts in Social Spending
–
The Federal Government has not been
funding basic physical infrastructure such as
roads and bridges.
–
See the American Society of Civil Engineers
2009 Report Card at
– http://www.infrastructurereportcard.org/
Cuts in Social Spending
While the other developed democracies have
expanded and improved their universal health
care, the US did not until 2010.
While other countries have expanded universal
afterschool child care, the US has not.
Higher education has become much more
expensive.
Rising Military Spending
Starting under President Reagan, the Federal
government has spent enormous sums on war.
http://armscontrolcenter.org/policy/security
spending/articles/fy11_growth_since_2
001/#contact
Economic Results Cont’
4. Dramatic Tax Cuts for the Rich
–
–
Enormous tax cuts for businesses, particularly
large corporations.
Enormous tax cuts for the wealthy. **
Economic Results Cont’
4. Dramatic tax cuts for the rich leads to:
–
–
–
The take home income of the richest 1-10%
goes up sharply.
They can take their increased income and
purchase more stocks and bonds.
Since they own more stock, they enjoyed an
even greater percentage of the stock market
boom of the ’80’s and ’90’s. **
Economic Results Cont’
4. Dramatic tax cuts for the rich leads to:
–
–
–
They can use their increased income to “rent”
more politicians, or even run for office
themselves.
This means that they can give themselves
even more tax breaks.
They can spend more to change how politics
is done. **
Economic Results Cont’
4. Dramatic tax cuts for the rich leads to
more conservative control of the US
government:
–
–
–
North American Free Trade Agreement
passed.
Central American Free Trade Agreement
passed.
Both of these will lead to more
deindustrialization and immigration. **
Economic Results Cont’
The widening income gap is not just
something that happens, due to
globalization or mysterious forces.
The widening income gap is the result of
deliberate policies to increase the wealth
and power of the rich, and to return the US
to the quiet of the 1950’s (or the 1920’s).
**